December 2003

Village To Appeal DEC Commission Power Plant 2 Diesel Ruling: January 31 2004 Closure Date is Premature:Village Agrees to Decommission Old Diesels When New Turbine Project Operates

(Freeport, New York, December 1, 2003) - The Decision of New York State Department of Environmental Conservation Commissioner Erin Crotty was issued last week, mandating closure of the Power Plant 2 diesels by January 31, 2004. Continuing its efforts to protect the interests of Village residents, businesses and ratepayers for reliable and cost effective electricity supply, the Village of Freeport is immediately pursuing an appeal of this decision. The decision continues to leave a capacity gap for the period between closure of the PP2 diesels, and the anticipated start of the new combustion turbines no later than April 1, 2004.

In September, Administrative Law Judge Molly T. McBride had recommended that the existing diesel generators at Power Plant 2 be permanently decommissioned on November 30, 2003 prior to operation of the new turbine generator project. Due to the late issuance of her decision, Commissioner Crotty mandated closure by January 31, 2004 to allow coordinated closure of the diesel equipment, which is rarely used.

"The DEC decision is administrative in nature and does not provide any valid substantive reasoning for this premature closure date - even extended to the end of January," responded Mayor William Glacken. "The Commissioner and Department again failed to demonstrate how keeping the diesels operable but inactive for the two-month period between January 31 and April 1 2004 would harm the environment." The two diesels have been maintained as operable, but inactive, since March of 2002 when an agreement was brokered between the Village and LIPA. Under that agreement, Power Plant 2 diesels would only be activated if directed by the New York Independent System Operator to meet emergency demands or conditions or to meet emergency conditions affecting the Freeport Electric System, as was done during the recent blackout on August 14th.

"Permanent closure of the diesels before replacement capacity of the new turbine generator is completed and in commercial operation, however, will result in significant financial risks and penalties to the Village ratepayers, even if the diesels are not actually operated," added Hubert Bianco, Superintendent of Electric Utilities. "The Village would be forced to go to the spot market and purchase capacity - essentially paying for a guaranteed reserve of electricity that might never be needed or used. Purchasing electric generating capacity could add as much as 22% to the electric rate." The cost of purchasing capacity would be immediately passed through to Village ratepayers as soon as incurred.

"Even though Commissioner Crotty recognizes that emergencies such as the August 14th blackout required the Village to utilize the diesels and that there are circumstances when the Village is directed by NYISO to turn them on, the Commissioner discounted the importance of maintaining this capacity even in an inactive mode." "Even with the PP2 diesels, Freeport instituted rolling blackouts to manage electric load for the more than 32 hours it took to restore connection to the LIPA system," Mr. Bianco continued.

Progress on the turbine generator project at Power Plant #2 continues. The PCB remediation required in the area under active construction has been completed. Foundations have been poured, the turbine generator, emissions controls (SCR) and stack have been delivered and are installed. "The Village's contractors on the PCB remediation and generation project construction worked diligently over the past four months to facilitate the cleanup and keep construction moving forward," explained Mr. Bianco. "We are confident of an April 1, 2004 start date for the new generation project, at which point we are one hundred percent committed to the permanent closure of the diesels."

Village To Appeal DEC Commission Power Plant 2 Diesel Ruling: Village Acts to Protect Ratepayers From Potentially Significant Rate Impact If Diesels Are Forced Shut Just 2 Months Before New Combustion Turbine Operates

(Freeport, New York, December 8, 2003) - The late November decision of New York State Department of Environmental Conservation Commissioner Erin Crotty, mandating closure of the Power Plant 2 diesels by January 31, 2004 is likely to result in significant economic costs to Village ratepayers. Continuing its efforts to protect the interests of Village residents, businesses and ratepayers for reliable and cost effective electricity supply, the Village of Freeport is immediately pursuing an appeal of this decision. The decision continues to leave a capacity gap for the period between closure of the PP2 diesels, and the anticipated start of the new combustion turbines no later than April 1, 2004.

"The DEC decision is administrative in nature and does not provide any valid substantive reasoning for this premature closure date - even though the decision extended the closure date to the end of January," noted Mayor William Glacken. "The Commissioner's ruling failed to demonstrate how keeping the diesels operable but inactive for the two-month period between January 31 and April 1, 2004 would harm the environment." "However," he added, "the economic damage to the Village ratepayers when we are forced by regulatory rules of the New York Independent System Operator to purchase capacity for those two months will be real and substantial."

The two diesels have been maintained as operable, but inactive, since March of 2002 when an agreement was brokered between the Village and LIPA. Under that agreement, Power Plant 2 diesels would only be activated if directed by the New York Independent System Operator to meet emergency demands or conditions or to meet emergency conditions affecting the Freeport Electric System, as was done during the recent blackout on August 14th.

"Permanent closure of the diesels before replacement capacity of the new turbine generator is completed and in commercial operation, however, will result in significant financial risks and penalties to the Village ratepayers, even if the diesels are not actually operated," added Hubert Bianco, Superintendent of Electric Utilities. "Because we are required to demonstrate that we have guaranteed capacity equal to 93% of our peak demand from sources of electricity on Long Island, the Village would be forced to go to the spot market and purchase capacity. This means the ratepayers will be spending for a guaranteed reserve of electricity that might never be needed or used. We have estimated that purchasing electric generating capacity could add as much as 22% to the electric rate depending on market conditions at that time." The cost of purchasing capacity would be immediately passed through to Village ratepayers as soon as incurred.

Progress on the turbine generator project at Power Plant #2 continues. Major components such as foundations, the turbine generator, emissions controls (SCR) and stack have been installed. "With our continuing progress and the hard work of our contractors, we remain highly confident of an April 1, 2004 start date for the new generation project, at which point we are one hundred percent committed to the permanent closure of the diesels," Bianco concluded.